The US imports about 60% more than it exports. All but two of the top 10 US trading partners export more to the US than they import from the US. The potential imposition of steep import tariffs by the incoming US administration aims to redress this situation and encourage more local production and increased exports. Estimating the impacts of tariffs is as complex as the underlying supply chains linked to each type of product as well as counter measures applied by trading partners. We expect to be writing a lot about this topic in the coming months. This article focuses on how the US trade imbalance has evolved and which trading partners and products are likely to see the greatest impact.
Evolution of the US Trade Imbalance
Five countries account for 50% of US imports and exports – Mexico, Canada, China, Germany and Japan. The European Union alone accounts for about 18% of total trade. The top 10 account for 65% of total trade. Of the top 10, all but Canada and the UK export substantially more to the US than they import from the US.
The current trade imbalance is around where it was pre-COVID. The period between 2020 and 2022 should be viewed as an anomaly. At a country level, there have been distinctly different developments. The Ratio if imports to exports from Mexico has increased from about 1.3 in 2016 to 1.5 today, which the same ratio for China has dropped from around 4 to 3. Canada has increased from 1.1 to 1.2, while Germany has stayed broadly constant at around 2.2-2.3. Trade with the European Union has become slightly more balanced.
Automotive, Industrial and Tech Products to See Greatest Impacts
Broadly speaking mining, energy and bulk agricultural products account for about 28% of US trade value. Agricultural products may well be affected by potential retaliatory measures, but in general we expect tariffs will primarily be levied on intermediate components and finished goods. On the import side this particularly affects the automotive, industrial equipment, computers, household goods, medical and clothing and footwear segment. On the export side, the main groups by value include industrial equipment and parts, automotive, medical, semiconductors, transport equipment.
In the case of Mexico and potential tariffs will have an oversized impact on the automotive and transport equipment industries. China tariffs will affect a whole range of products including household goods, mobile phones, computers, apparel and toys.
In the past year imports of some of these products have been shifting to other origins. This includes mobile phones from India, Vietnam and Mexico, more automotive related shipments via Mexico, more clothing and footwear shipments from Vietnam and parts of South Asia. Where tariffs are applied in a non-uniform manner, we are likely to see further shifts to reduce landed cost.